July 31, 2013
Tetragon Financial Group Limited (TFG) is a Guernsey closed-ended investment company traded on NYSE Euronext in
under the ticker symbol "TFG."(1) In this report we provide an update on TFG's results of operations for the period ending
30 June 2013
EXECUTIVE SUMMARY AND OUTLOOK
TFG achieved positive operating and financial performance in H1 2013, with an annualised Return on Equity ("RoE") of 12.3% in line with our over-the-cycle target of 10-15%
.(2) Annualised RoE for Q2 alone was 7.3%. As anticipated, and as discussed in the company's Q1 2013 performance report, the rate of earnings growth has slowed from previous quarters due to, among other things, credit spread tightening. Credit spreads have been tightening for several months and for TFG's CLO portfolios this is a double-edged sword. Tighter credit markets are a positive in that they potentially reduce the discount rate on future cash flows; also, tighter credits tend to be caused by a relatively benign default environment which in itself is good for the company's CLOs. However, these conditions also mean that borrowers tend to prepay their loans and reissue at lower spreads, thus reducing the net interest margin in each CLO. These two counterbalancing factors have been the dominant themes in TFG's U.S. CLO portfolio during the first half of the year.
In H1 2013, TFG made
of new investments into all of its existing asset classes: loans (via CLO equity); real estate; equities; and credit. We expect to continue to invest in these asset classes in the second half of the year.
TFG's asset management business ("TFG Asset Management") had good financial performance during H1 2013.
Looking at the company's goals for 2013 expressed in the 2012 Annual Report: